Dentists and Practice Real Estate: How the Building Should Be Held

Ownership builds equity and gives the practice control over its largest fixed cost, but it concentrates capital, carries management burden and ties the owner to the location. Leasing preserves flexibility for growth and relocation.

For dentists confident in a long run at one address, ownership is a serious model worth running; for others, the lease is the better economics.

A common structure holds the real estate in a separate entity, often an LLC owned by the dentist or family, which leases the space to the practice at rent that must be reasonable and defensible. Related-party rent is a reviewed area, so the amount and the documentation have to hold up.

Separate ownership also creates options at transition: the practice and the building can be sold to different parties, or the dentist can keep a rental stream.

The building brings depreciation, including the possibility of cost segregation on the build-out, and the real estate entity's income and deductions have their own tax architecture separate from the practice. Financing terms depend on the entity's credit history and equity position.

Because practice income and building income are taxed differently, holding the property correctly is a recurring planning question, not a one-time setup.

Buyers, associates and DSOs have different preferences for the building. Some want to buy it, some want a clean lease and some want the seller to keep it. Which option maximizes the owner's total outcome depends on the market and the owner's goals.

Modeling the practice and the building together, instead of handling them as two deals, is what keeps the biggest asset coordinated with the career decision.